Impact investment ‘delivers returns of up to 9%’

Impact investments deliver excellent financial returns for investors of up to nine per cent, according to some of the latest figures from consultancy Global Impact Investing Network and Cambridge Associates.

An unfortunate but lasting perception of impact investments is that these assets offer lower financial returns than more traditional profit-focused investment models. Even as proponents of the cause argued that impact investments can be financially beneficial as well as morally or socially advantageous, for many, this combination either appeared too good to be true or just wasn’t of interest and most still looked to traditional strategies when money was their end goal.

Changing perceptions of impact investments

All that is finally starting to change and a recent report from the Global Impact Investing Network and Cambridge Associates has played an important part in helping to demonstrate that there is some serious cash to be made in impact investments, as well as good deeds to be done.

The study found that impact funds are offering strong returns. Reviewing around 50 funds, which all invested in businesses that aimed to help people and causes, the researchers found that funds launched between 1998 and 2010 showed an average annual return of 6.9 per cent to investors through to June 2014.

Furthermore, emerging market-focused funds showed an even higher benchmark for returns of 9.1 per cent, compared to the 4.8 per cent average seen among funds investing in developed markets. The study demonstrated that funds operating with a focus on Africa had the strongest results during the research period with returns averaging 9.7 per cent.

Details matter

One thing that becomes clear after reading through the report is the fact that there is just as much variation in returns across funds with different focuses as in traditional markets. Unsurprisingly then, it’s the investors that look through the details, select the niche sectors and invest confidently that are seeing the strongest returns.

The impact investment funds analysed generated an average net internal rate of return of 6.9 per cent, which puts them below the 8.1 per cent average annual returns seen across a universe of comparable private equity and venture capital funds during the same period.

However, smaller impact investment funds that raised less than $100 million averaged much higher returns of 9.5 per cent, clearly outperforming their comparable non-impact vehicles, which averaged 4.5 per cent returns at this level. When the funds were even more specialist – sub-$100 million and focused on the US – they returned 13.1 per cent, compared to 3.6 per cent of non-impact comparative funds.

Watch this space

Jessica Matthews, head of Cambridge’s mission-related investing group, commented on the findings when the study was released in June 2015: “There’s a view among some investors that impact investing necessarily entails a sacrifice in financial return.

“However, this data helps to show that is more perception than reality.”

The report will help to prove the naysayers wrong about impact investment and encourage more people to consider it as a viable option. But there is certainly more work to be done to gather data, as the study notes: “Given the limited size of the sample and the overall youth of the funds … it is difficult to draw definitive conclusions on the performance of impact investing funds.”

But this report is a great start in generating more data and feedback to enable investors to make decisions based on realistic information and expectations.

Remit

To illustrate the current state of alternative assets around the globe including hedge funds, real estate, managed futures, commodities, forestry, venture capital, impact investment, private equity, structured financial products and derivatives contracts. We also analyse and provide news on the global performance of alternative investments.

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